Wednesday, July 16, 2008

Seagate's quarter was in-line but the guidance was worse than expected. Costs are too high on high capacity drives and pricing there looks worse than expected and as a result, gross margin guidance was meaningfully reduced for the next several quarters. Though inventories came down and notebook drives were strong, it wasn't enough to offset the significantly higher volume mix of 250+gb price degradation.

Let's call this what it is. A bad, bad call. I have to confess, I got stopped out of the position at 18.5ish after buying too much a bit under 21 and I didn't report it. For the record, I have no position in WDC at this point either, the other side of the pair.

In an unusual comment, Seagate claims their pricing problems are their own and not those of the industry. Perhaps a good sign for WDC. Despite that comment, WDC will probably also get hit this morning.